The deceptive trick about raising the bailout money is that our government is not
funding the bailout through budgets cut and new taxes, but rather by selling more treasury debt (t-bills,* t-notes, and t-bonds).Interest on the federal debt us now the second largest budget item after military
spending. **T-notes and t-bonds are sold at a discount (below face value).They also pay a percentage interest collected every 6 months.This is money spent on interest in the U.S. debt is thus money flushed down the toilet, for it buys nothing we can use.

The down side to selling more bonds is that we and future generations are saddled
with the interest unless they pay off the t-bonds and notes.Moreover, they are
sold at a discount, thus requiring the sale of an ever increasing amount to replace the old ones that have matured.Secondly, for to sell the t-bills, they must be made attractive.This becomes ever more difficult given (1) the huge amount being sold monthly, (2) our ever increasing economic instability,
which has been made ever more obvious through this market meltdown. To make the t-bonds attractive top foreign investors,
they must promise a decent return which is accomplished two ways.Now favored
is the falling dollar. The Euro has gone up nearly 50% this decade above the U.S. dollar. For the sake of clarity, I will
use rounded figures.A European bank spends 1 million euros on t-bonds it will
get $1.5 million in t-bonds (ten years ago the same amount of euros would have only bought $850,000 in t-bonds).Then if now the trend has reversed and the dollar goes up so that 1 dollar = 1 euro, then they will have
1.5 million euros.The second way to make the next batch of t-bonds attractive
would be to pay an even higher interest rate, this is accomplished by its discount rate below face value.If the latest batch won’t sell at the discount rate of 95% then the discount rate will go lower.T-bills could be sold at 80 cents on the dollar, or our dollars could drop in value
to accomplish the same for those with foreign currency.

* T-bills are short term notes (1-4 months) that
are sold at a discount to face value; for example for $9,900 dollars and mature at $10.000.T-notes
mature in 2, 5, or 10 years, while t-bonds are from 10 t 30 years, which are issued quarterly.There are also the less significant series EE bonds and I Saving Bonds which are sold
to the public.

**Social Security is a separate item. We pay a special tax that goes into the social
security fund.

Neoliberal free-market policies failing
again.Under Reagan it was the S&L debacle, then it was the dot com and teach
stock bubble and now the housing market collapse.Solution, raise the debt, drop
and sell more T-bills, which is done through dropping the value of the U.S. dollar.

From a story talking about the housing
bill in the Wall Street Journal on the mortgage bill Congress is passing “As a result of the bill, Congress will raise
the national debt ceiling to $10.6 trillion from $9.8 trillion.”(See bottom of page for article). (In addition
there is household which during the Bush reign has risen from $7.6 to $13.9 trillion, an increase of 82%.)

Let's just add more debt to the total,
shall we? After all, we don't have enough debt. And we certainly wouldn't want to do anything that remotely resembles fiscal
responsibility. That might send the wrong message to the markets about the US government's intentions.

Let's review. First, here is the yearly total of total US government debt outstanding at the end of each federal fiscal year.

Why are these figures important? Because
they indicate there is a systemic problem with the US government's budgeting system. Since the end of fiscal year 2002, the federal government has added at least $500 billion dollars of net new debt per year
every year. That indicates the budget has never even come close to being balanced over the last 7 years -- despite rampant
claims to the contrary. "But Bonddad -- the national press says the budget deficit is small!" Right -- that's why we're borrowing
all that money -- because we're balancing the books of the federal government. Anyone who is reporting the federal government's
books are balanced should resign from the financial press right now because they have no idea what they are talking about.All this debt has resulted in $550 billion in write downs (see http://www.huffingtonpost.com/hale-stewart/from-one-disaster-to-anot_b_126442.html, Hale Stewart, 9/15/8).

But there are three deeper and far
more important reasons why this continual raising of the
debt ceiling is so incredibly dangerous.

The first is psychological. At the
national level the federal government has continued to abdicate fiscal responsibility. The US went to war and didn't raise
taxes to pay for it. The US increased domestic spending and didn't increase taxes to pay for it. Instead, we acted as though
the debt didn't matter and that tax cuts pay for themselves. As a result we are left with an ever-increasing mountain of debt
which we continue to kick down to road. {One kick is that the second biggest item—excluding SS which pays for itself
in a separate tax—is the interest the U.S. pays on the debt—jk.} By not making tough choices now we make it easier
to not make tough choices tomorrow.

The second reason is far more practical.
As the debt load of the US has increased, the value of the dollar has dropped. Although
the US economy was in an expansion* from November 2001, the value of the dollar continually
dropped. Why?**An expanding economy should attract investment which in turn bids up its
currency. Yet the dollar dropped. Some of the reason for this is interest rate policy which is an important determinant in
currency valuation. However, the US -- which is the world's largest economy -- was seeing the value of its currency continue
to decline. This has lead to inflationary pressures because commodities are priced in dollars. A drop in the value of the
currency a good is priced in amounts to a de facto price increase in the good. In other words, one of the primary reasons
for the spike in oil prices is the dollar's long-term drop in value. And we can thank fiscal irresponsibility as a primary
reason for that.

The third reason why this development
is important is it continues to push the national economic
foundation closer to the edge. At some point all of this debt may cause very serious problems. Suppose that US
creditors (bondholders) looked at the US' books and said, "I don't think you're going to be able to repay this loan I'm making
to you. I need a higher interest rate as compensation for the risk I'm taking by lending you money." At that point, US interest
rates increase. Imagine if that happened right now when the economy is at the beginning of a recession***. In other words, we're creating a situation that is rife with possible future problems. And some of these
problems are serious -- as in they could lead to the financial system freezing from a random world event.

"But Bonddad. We've been doing business
like this for almost 30 years and nothing bad has happened! It must be OK to do things things this way." Fine. Try smoking
a pack a day for 30 years. You may not get cancer. But your chances of contracting it are a whole lot higher. That's why doctors
will always advise you to quit.

Comments
by JK

**T-bills are sold to repay those that mature.The way to make them attractive to foreign markets is either to make the U.S. dollar cheaper (over 40 percent
in 4 years against the Euro), or to have them pay a higher return through raising the percentage of dividends.But since bank loans, floating mortgages, etc. are tied to the T-bill rate this would effect negatively
all sectors of the economy, thus the falling dollar.

**The economy hasn’t been expanding because the figures based upon this expansion
do not account for the declining value of the dollar.Since the 1980’s
various price inflations have been dropped from the calculation of inflation (including food, energy and consumer goods).Increases in manufacture goods prices is skipped (the logic is that they last longer).Adjust for the true value of the
dollar, and our economy has been contracting.

***
We are in a recession: more flaky account.Adjust these figures for the actual
rate of inflation.

By lying about the rate of inflation our government saves billions of dollars.For example the increase in social security payments is tied to the rate of inflation, as is government employee salaries.Most large corporations, and those with unions, give pay raises based on the rate
of inflation.In the last two years the real rate of inflation (how much it costs
to do everything you normally do) has gone up over 10% each year--jk.

The Feds must shore up the banks, if they fold they will suck we will be in another great depression.Don’t assume that our Neoliberal Republicans and the fellow-travelers Democrats are doing this to
save your home from foreclosure.It is about saving their banking supporters.

Housing Bill
Will Extend Federal Role In Markets

By DAMIAN PALETTA and JAMES R. HAGERTYJuly 24, 2008; Page A1

WASHINGTON
-- A sprawling bill that reaches deep into the U.S. housing
industry is close to becoming law, in what will likely stand as the federal government's most expansive effort to stabilize
the mortgage and financial markets.

The bill, which began seven months
ago as a modest attempt to help struggling homeowners, will now likely touch a vast array of borrowers, lenders, and investors:
from owners in Colorado facing foreclosure to community banks in California
and investment banks on Wall Street.

The package could also come at a
significant cost to the U.S. government, which would be authorized
to invest billions of dollars in troubled mortgage giants Fannie Mae and Freddie Mac, as well as insure up to $300 billion in refinanced mortgages. As a result
of the bill, Congress will raise the national debt ceiling to $10.6 trillion from $9.8 trillion. It will also give Fannie
Mae and Freddie Mac a new, tougher regulator.

…………………………..

The legislative effort began in
earnest after the Christmas recess with a measure to help roughly 500,000 homeowners avoid foreclosure. Since then, several
of the country's most influential financial institutions, including Bear Stearns Cos., Countrywide Financial Corp. and IndyMac
Bancorp, either collapsed or were sold at fire-sale prices.

Lawmakers and the Bush administration
cobbled together a legislative response that became more ambitious at each turn, culminating with the rescue plan for the
twin mortgage giants. The bill temporarily increases the Treasury Department's potential line of the credit to Fannie Mae
and Freddie Mac from $2.25 billion to an unlimited amount. It would allow the government to bulk up regulation of Fannie Mae,
Freddie Mac and the 12 Federal Home Loan Banks -- something critics of those institutions have been pushing for more than
a decade.

………………………………

Fannie, Freddie and
the FHA accounted for about 90% of U.S. home mortgages originated
in the second quarter, the highest level in at least 50 years and up from 49% a year earlier, according to Inside Mortgage
Finance, a trade publication. Fannie and Freddie buy home loans from lenders, turn those loans into mortgage-backed securities
and sell the bulk of the securities to other investors. The FHA insures lenders and loan investors against losses on defaults.

The legislation provides a federal
backstop for the two companies, a move prompted by broad worries that both might falter, a scenario that would cripple the
housing market and envelop other financial institutions. Buyers of bonds issued by Fannie and Freddie range from small community
banks to foreign central banks.

The biggest boost for homeowners
is a program that would allow the FHA to back the refinancing of as much as $300 billion in home loans for distressed borrowers.
Under this plan, the lender or investor holding the mortgage would have to accept at least a 15% write-down in the value of
the previous loan. The new mortgage would then receive federal backing.

Mark Zandi, chief economist at Moody's
Economy.com, said the legislation doesn't provide any miracle cure for the housing market, but a defeat "would have been catastrophic."
He still expects the average nationwide house price to fall another 10% or so between now and next April or May. Then he expects
prices to bottom out and begin a gradual recovery. He expects that about 1.25 million American households will lose their
homes to defaults in both 2008 and 2009.

Teddy Roosevelt's advice that, "We must drive the special interests out of politics. The citizens
of the United States must effectively control the mighty commercial forces which they have themselves called into being. There
can be no effective control of corporations while their political activity remains."

Nothing
I have seen is better at explaining in a balanced way the development of the national-banking system (Federal Reserve, Bank
of England and others).Its quality research and pictures used to support its
concise explanation set a standard for documentaries--at http://www.freedocumentaries.org/film.php?id=214. The 2nd greatest item in the U.S. budget
is payment on the debt.